“To encourage providers to invest, we need policy stability and assurance of future returns” – Aged care CEO, Frank Price, on government supporting development

CEO, Frank Price, of Royal Freemasons’ Benevolent Institution, like many of his contemporaries, has grappled with the recent messages from government regarding build rates in the sector. To guide effective policy, the current environment in which providers are meant to be building needs to be a core part of policy, not distanced from it. Price highlights significant opportunities for government policy to support rather than hinder bed development.

The awareness that beds are desperately needed is not lost on any in the health or aged care sector. From current ‘bed block’ of seniors in hospital with no options to leave, increased ambulance ramping figures, and an ageing boomer cohort, the need for more beds is steep. In September the Federal Health minister spoke to state ministers saying he, “recognised their frustration that the aged care sector is not building the beds at a pace we need them, and we need to do more to make sure that happens.”

However, from acknowledging policy measures resulting in uncertainty, to the limiting of financing builds to loans alone, Price hedges there is certainly opportunity for Government to do more to support the building of beds.

Gargantuan projected need

While the government is yet to release projected figures, livewire, an investment group has projected that by 2034, 350,000 beds will be needed in aged care. With government figures placing the current number of beds at “223,691 operational places allocated to residential care services” as of 30 June 2024, this sets the bar of future need at around 130,000 new beds.

The government assesses the average age of entering aged care to be 85, and so tracking from census data, it is likely that Australians 85 years and older will exponentially rise from 565,000 in 2023, to 958,000 in 2034. These are the numbers. If 350,000 holds to be true for seniors that will need to enter RAC in 2034, 13,000 new beds per annum need to be built each year. This is well below the current rough build rate of 1,500 net new beds per annum expected until 2027.

The rising tone and conversation at upcoming need is ubiquitously agreed but in speaking to aged care leadership, there is a major disconnect between the language used from the public quarter, and the reality of policy impacts on the ground when it comes to breaking ground.

“Commonwealth does not fund accommodation”

Price is clear, “it’s important to clarify that the Commonwealth does not fund accommodation.” In this time of government lobbing statements to the sector Price says, “The question I would pose to the government is: how does the new Aged Care Act inspire investment when co-payments remain a zero-sum game for providers?”

Striking to the heart of the tone and angle of recent government messaging, the reality of the sector’s purpose and role, the basic functioning of providers in the sector must be re-acknowledged.

 “From a fairness perspective, providers are obligated to comply with legislation and deliver services that meet the needs and aspirations of older Australians—not to build capacity.”

Managing competition

Minister Butler has stated, ““We know we need to build enormous numbers of new facilities to accommodate the ageing of the baby boomer generation… but they’re not happening in the numbers we need right now, today.”

Price takes this as, “suggest[ing] the Minister understands that the responsibility for building capacity lies with the Commonwealth.” In order to underpin the environment where capacity is supported, Price advocates that there must be policy change from the government, including even entering into the ‘prickly’ area of competition against other uses of the land and developers.

“I would encourage the government to develop policies that support providers with the cost of new builds, streamline the time it takes to ‘turn the sod’, and designate land exclusively for aged care to reduce competition with developers.”

“The cost of building aged care facilities is primarily borne by residents”

In terms of the reality of building, Price highlights the stark nature of the cost, and in an industry where only 68% of providers are profitable, the lift to increase build capacity becomes evidently mired.

“Unless a provider receives a government grant, the cost of building aged care facilities is primarily borne by residents.”

Even when it comes to covering running costs of a built facility, Price highlights funding model shortfalls, “Those paying DAP or RAD effectively cross-subsidise the inadequate accommodation supplement, which is capped at $70.94 per day.” Where providers want to deliver care above a 3-star level, “funding is calibrated to a 3-star level, and any staffing above that is paid for by the provider.”

Where providers are losing money to provide the highest quality care, the profit margins to put into increasingly expensive builds widens the gap of, not just enthusiasm to build, but financial viability at all.

Construction costs

“Construction costs began to spike in late 2020. Previously, the average cost per bed was around $350,000. Today, it’s closer to $640,000—driven by increased labour and material costs, builder availability, and delays in DA approvals.”

Price notes, “Rural and remote locations face even higher costs, often exceeding the RAD that can reasonably be charged, leaving providers to fund the shortfall.”

In a nation where internally we are known for eye-watering land costs, the obstacle to building worsens, “Importantly, this figure excludes land costs. Unless providers have access to legacy landbanks, the total cost per bed—including land—is approaching $1 million.”

Liquidity requirements and loan risks

In an understandable measure to ensure that providers have enough liquid cash to use in case of unforeseen emergencies, known as the liquidity standard, this has had implications for providers who wish to build.

In the effort to allow changes to how this liquidity is measured, Price shares that he, “welcomed the Commission’s proposal for a default arrangement where providers demonstrate financial robustness. We now await detailed guidance.” And so the policy changes to measuring take time where the sector waits on government pivoting.

As evident to the majority of provider leadership, the cost of building is significant, with providers struggling to cover functioning costs across facilities, the financial lift to also cover build costs strays into the impossibility. Hedged into this corner as Price notes, many providers have only the option to borrow to financially underpin the possibility to build.

“If RFBI were required to hold the prescribed level of liquid funds, rebuilding one of our older homes would necessitate borrowing—incurring interest and placing additional pressure on project viability.”

“This is a significant concern for providers seeking to invest in new infrastructure.”

Slowed development is not sector borne

Price clearly names the impediments that have been felt sector wide in attempting to build. He advocates that government, media and societal experts must understand these impediments.

“Escalating construction costs over the past five years, competition with deep-pocketed developers for land and lengthy and costly DA approval processes”, are all substantial obstacles to lifting to reach the significant figure of 13,000 beds per annum.

Support sector builds

Price recommends policy solutions that are tailored to the reality of the sector.

“Mandating aged care-inclusive development zones across Commonwealth, State, and Local levels, offering capital grants to offset build costs and streamlining planning approvals to reduce delays”, are all immediate measures Federal and State governments can pivot towards to underpin their messaging of doing more to support beds being built.

Consistent policy

Price raises the concern of unexpected volatility and expectancy when it comes to policy.

“To encourage providers to invest, we need policy stability and assurance of future returns. Constant policy shifts undermine confidence.”

He notes, “For example, the former Minister championed the small house model, citing its superior care outcomes. Yet recent changes to the definition of “care worker” now exclude staff performing narrowly defined duties—rendering the model financially unviable. This contradiction highlights the need for coherent, long-term policy direction.”

Supporting quality care expansion, not poor performer padding

In the charged atmosphere of understanding the upcoming need, and gap in annual bed rates to reach those numbers, Price advocates that providers who are not operating well, and not providing quality care, must not be included at any cost.

“It’s not the government’s role to prop up poor performers.”

He advocates that in order for the sector to meet the rising need, grapple and overcome current challenges, the sector must be at its best, and uplifting the best to reach the build capacity needed, without throwing ‘good money after bad’ will take deeper work from government and the sector.

“If funding and user contributions are sufficient to support high-quality care, we must ask why some providers still operate at a loss. If some achieve surpluses while others don’t—despite offering similar services—then leadership and culture must be examined.” It may also be worthwhile to examine providers who are providing excellent care, these can be supported to expand with build capacity and offer an executive and management blueprint for others. In the race to reach enough beds, the collateral of having been inclusive of inherently poor-performers is not acceptable for residents and a stain on the sector and high performers.

Profit means resilience and choice

Price advocates there is work for both provider leadership and government actors to collaboratively unpack management and financial performance across the sector.

“While rural and remote providers face unique challenges, it remains puzzling how comparable providers can deliver such different financial outcomes.”

Looking ahead to reaching a point where the sector is robust and resilient is still a critical attitude for both government and provider leadership. Through dynamic funding models, stellar management, facility processes, financial savvy and front-line staff, resulting in profits to re-invest into builds, Price notes, “We need to better understand the financial dynamics across the sector—not just within individual organisations.”

Far from a bad word, profitability must be a core goal for all providers in the sector. Re-investing profits within the provider is choice, to maintain, to build, to expand without undue pressure on the tax-payer. For the present, and the long road, the sector must be seeking to deepen financial viability to ensure a strong sector able to effectively care for the huge numbers entering its doors.